SINGAPORE (Feb 1): UOB Kay Hian is maintaining its “buy” recommendation for Singapore Telecommunications, even as Vodafone Group and Idea Cellular continue with talks about merging their Indian operations.
At present, SingTel’s Bharti Airtel is the largest mobile operator in India with 260 million subscribers and a 24% market share.
The potential merged entity between Vodafone and Idea – the second and third largest mobile operators in India – could overtake Bharti with a combined 387 million subscribers and a 36% market share.
Smaller telcos Aircel and Reliance Communications are also said to be in discussions over a possible merger.
So why is all this not a concern to Bharti and Singtel?
UOB Kay Hian’s analyst Jonathan Koh points out that Vodafone has had a chequered history in its India operations. The group incurred large investments to build the business, but continued to suffer from recurring tax issues. In 2016 alone, Vodafone injected US$7 billion ($9.9 billion) and recognised writedowns of US$5 billion.
“There are speculations that Vodafone would eventually sell-down shares in the merged listed entity. The merged entity would also have to divest pockets of spectrum in various circles to comply with regulations regarding ownership of spectrum,” explained Koh, adding that there is a possibility both parties may not come to an agreement on the terms and pricing of the deal.
Even if the merger was successful, that would mean that India’s mobile industry would be dominated by just two players, down from the original three, and that Bharti will have one less competitor to contend with.
Share prices for Bharti Airtel and Idea Cellular have already reacted positively to the new of the consolidation in the mobile industry, gaining 7.8% and 40.4% respectively.
Given that Bharti Airtel accounts for 12.7% of SingTel's pretax earnings, Koh maintains his “buy” recommendation on the stock with a target price of $4.53.
Shares in SingTel are trading at $3.87 on Wednesday.